With interests on FDs coming down, some alternative investments that give higher returns than FDs

By December 4, 2019 Money Matters


The fall in interest rate can be financially stressful for many, especially people who depend on bank fixed deposits for regular income. Retired people typically form a large part of this group. So, before renewing your fixed deposits (FDs) at lower interest rates, it might make sense for you to review other investment options including small finance banks, mutual funds etc. In the article below the author lists out alternatives that can be looked at. Team RetyrSmart

With interests on FDs coming down, some alternative investments that give higher returns than FDs

Here are some other investment options that you can look at:

Small Finance Bank FDs

Small finance banks, such as Utkarsh Bank and Jana Small Finance are seen to offer higher interest rates to attract customers, as compared to bigger banks. For instance, these banks generally offer an interest ranging from 8.50 to 9 per cent on a 1 year fixed deposit.

These banks are covered under the Deposit Insurance and Credit Guarantee Corporation of India and are regulated by RBI, hence, experts suggest investors can opt for these FDs. Note that, interest on FDs is taxable as per the slab rate.

Post office schemes

There are nine long-term schemes available under the post office schemes. These are quite popular among small investors. The interest rates on these small saving schemes are revised quarterly. Popular investments under this scheme include PPF, Post office time deposit, Senior citizen savings scheme, and Monthly income scheme among others.

PPF, a long-term investment option offers guaranteed returns and offers a return of 7.90 per cent, and also falls under the EEE category (exempt, exempt and exempt). The senior citizens saving scheme whereas offers an interest rate of 8.60 per cent, and the national savings certificate offers an interest rate of 7.9 per cent along with a tax break u/s 80-C.

Tax-free bonds

Tax-free bonds are long-term usually issued for tenure ranging from 10 to 20 years tenure. These tax-free bonds are issued by the government, from time to time. The risks of these bonds are lower, as they are issued by government entities.

For those in the higher tax brackets looking to lock-in money for long-term, can look at this option as the interest income is not taxable, hence, these can be a good option. If you want to invest, look out for issues, as they may not be open always.

Mutual Funds

Investors can look at these two types of mutual funds – Arbitrage mutual fund, and Debt mutual funds. Arbitrage MFs simply put leverages the differential in price between derivative markets and cash. However, for taxation purposes, they are like equity funds.

Debt mutual funds provide indexation benefit, hence the tax outgo of the investor is lowered. One can choose from multiple categories of funds, that suit their risk profile.

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